A Minnesota Contract for Deed generally refers to an executory contract for the purchase and sale of Minnesota real estate.
Important note: Significant changes were made to the Minnesota statutes relating to contract for deeds effective August 1, 2024. Such changes are not reflected in this discussion!
A Minnesota executory contract is a contract which:
A Contract for Deed is a method of financing the purchase and sale of Minnesota real estate by which the purchaser:
Upon payment by the purchaser to the seller of the complete purchase price, the seller will be obligated to convey a predetermined form of title to the purchaser pursuant to the delivery of a deed of conveyance.
Minnesota Contract for Deed financing originated in the late 1800s when farmers were unable to obtain sufficient capital from local banks to purchase farmland.
If a farmer was able to locate a seller willing to take a Contract for Deed in payment, the farmer could purchase Minnesota farmland:
However, it wasn’t long before purchasers of real property located in Minnesota cities discovered that Contract for Deed financing worked just as well for Minnesota residential and commercial property transactions as it did for sales involving farmland.
By skipping the banks and working directly with real estate sellers, such buyers were able to purchase real estate without the loan underwriting and paperwork customarily required by banks.
Contract for Deed financing also required fewer closing costs and financing charges.
When negotiating the terms of a Contract for Deed, purchasers and sellers are free to determine:
Upon the execution of a Minnesota Contract for Deed by both the purchaser and the seller:
If a seller’s real property is subject to an existing mortgage lien, it is generally not suitable for Contract for Deed financing.
If the purchaser and the seller enter into a Minnesota Contract for Deed transaction in which the real property is subject to an existing mortgage lien, the mortgage lien holder will usually have a right to declare the outstanding balance of the mortgage lien immediately due and payable.
Any such acceleration of the outstanding mortgage lien obligation:
if the mortgage lien was foreclosed upon.
By acquiring equitable title to the real estate identified in a Minnesota Contract for Deed, the Contract for Deed purchaser:
Therefore, the purchaser identified in a Contract for Deed:
Upon full payment of the purchase price, and satisfaction of all other obligations owed to the seller identified in a Minnesota Contract for Deed, the purchaser identified in the Contract for Deed will have a right of specific performance to require the seller to transfer the legal title to the real estate to the purchaser pursuant to a deed of conveyance.
The measure of legal title to be received by the purchaser from the seller will be dependent upon:
Therefore, an examination of the status of the real estate title record should be performed by the purchaser’s legal counsel, both:
By retaining the legal title to the real estate identified in the Minnesota Contract for Deed, the Seller will have the benefit of a security lien against the real estate title until such lien is released to the purchaser upon full payment of the purchase price, and delivery to the purchaser of the deed of conveyance.
It is generally advisable, and it is legally required, for the purchaser to record a Contract for Deed after it has been duly executed by the purchaser and the seller.
Proper recording of a Minnesota Contract for Deed prospectively provides constructive legal notice to all third parties of the interests of the purchaser in the real estate which is the subject of the Minnesota Contract for Deed.
It also notifies the real property tax assessor that a real estate transaction has occurred at a certain price.
In the event that the purchaser identified in a Contract for Deed defaults in any of the purchaser’s obligations to the seller identified in a Minnesota Contract for Deed, the seller generally will have the right to terminate the Contract for Deed pursuant to a statutory procedure, which,
Upon proper service of a Notice of Cancellation of a Minnesota Contract for Deed upon the purchaser in the event of the purchaser’s default in the terms of the Contract for Deed, a purchaser of non-agricultural land will generally only have 60 days in which to:
If the purchaser identified in a Contract for Deed has paid a considerable percentage of the purchase price for the real estate at the time of the purchaser’s default on its obligations identified in a Minnesota Contract for Deed, any termination of the Contract for Deed and resulting extinguishment of all of the rights which the purchaser had previously acquired in the real estate may result in:
A seller who successfully terminates the rights of a purchaser in a Contract for Deed:
One of the advantages to the seller with respect to the sale of real estate pursuant to a Contract for Deed is that no Minnesota deed tax need be paid on the transaction until the entire purchase price has been paid to the seller.
Therefore, whatever initial down payment the seller is able to collect from the purchaser need not be diluted by the immediate payment of Minnesota deed tax upon the recording of the Contract for Deed.
The payment of the deed tax in a Minnesota Contract for Deed transaction will be deferred until the deed conveying the legal title to the real estate has been delivered to the purchaser.
A sale of real property pursuant to a Contract for Deed may also require the preparation of a Minnesota real estate purchase agreement in order to satisfy certain statutory disclosure requirements imposed upon the seller.
While there are “standard” forms which may be used with respect to any Minnesota Contract for Deed transaction, many real property transactions involve unique circumstances which require careful drafting of the significant terms of the Contract for Deed.
The best practice with respect to a Contract for Deed transaction is that upon the closing of the purchase agreement transaction, the purchaser and the seller execute a Contract for Deed form which has been customized for that particular transaction.
For that reason, real estate transactions involving Minnesota Contracts for Deed are best handled by Minnesota attorneys experienced in such matters.
Minnesota real estate brokers who are not attorneys are prohibited from providing legal advice to their customers.
Therefore, even if a purchaser or a seller has retained a Minnesota real estate broker to assist in the preparation of a purchase agreement which will culminate in the execution of a Contract for Deed, it is always advisable for the purchaser and seller to each retain their own legal counsel in order to be properly advised with respect to:
Once a Minnesota Contract for Deed has been duly executed by both the purchaser and the seller, changes to the original terms of the Contract for Deed can be documented in a recordable Contract for Deed Modification Agreement.
Such Contract for Deed Modification Agreements can be used in the event that both of the parties desire to modify the terms of a Contract for Deed, such as to:
Once a Contract for Deed has been duly executed by both the purchaser and the seller, either the purchaser’s interest or the seller’s interest in the Contract for Deed can be subsequently assigned to other parties – absent contractual limitations on such assignment rights.
If limitations on such assignment rights are desired by either a purchaser or a seller, such limitations should be incorporated into the terms of the Contract for Deed.
Transferring or assigning:
are transactions best handled by Minnesota attorneys experienced in such matters.
The interest rate which may be charged on a Minnesota Contract for Deed is subject to limitation under the Minnesota usury statute for a contract-for-deed, identified at M.S. Section 47.20, Subd 4a.
The web site operated by the Minnesota Commissioner of Commerce will identify the maximum interest rate which can be charged on a Minnesota Contract for Deed.
Unless the seller of a Minnesota manufactured home is also selling the real estate lot on which the manufactured home has been permanently affixed, the financing transaction with respect to the sale of a manufactured home is not properly identified as a contract-for-deed transaction.
Rather, the financing of a manufactured home which has not been properly affixed to real property is more properly identified as a promissory note transaction – perhaps combined with a security interest in the manufactured home until the promissory note has been paid in full.
Both purchasers and sellers contemplating the use of a Minnesota Contract for Deed, and parties contemplating the assignment, cancellation, or modification of an existing Contract for Deed, should retain the services of a Minnesota attorney experienced in such matters.
Gary C. Dahle, Attorney at Law, is licensed to practice law in the State of Minnesota, and in the State of North Dakota, has experience in the creation, execution, assignment, cancellation, and modification of a Contract for Deed.
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